Chetcuti v Scarf & Ors

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG J MONDAY 19 JUNE 2000

2024/2000 - JOSEPH CHETCUTI v STEPHANIE BERYL SCARF & ORS

1 HIS HONOUR: This is an application to extend a caveat which has been lodged by the plaintiff against the title of property at Avalon. 2 The essential facts are not in dispute and I will list them briefly:

A. On 1 June 1998 a commercial lease was granted by the first defendant to the plaintiff of shop 3/23 Old Barrenjoey Road, Avalon, for one year.

B. On 11 August 1998 a similar lease was granted over shop 2/23 Old Barrenjoey Road for 343 days.

C. Both leases expired (save for the effect of the Retail Leases Act 1994) on 14 June 1999.

E. At all material times the plaintiff was not aware of the existence of the Retail Leases Act 1994.

F. The plaintiff says that before he signed the leases, he told the lessor's agent, Mr McDonagh, that he really required a lease of three years duration but was told by Mr McDonagh that the lessor was only prepared to grant a one year lease. A rental was negotiated which was less than might otherwise be payable because the plaintiff would be forced to relocate at the expiration of twelve months.

G. In September 1998, the first defendant granted an option to purchase the properties known as 21 and 23 Old Barrenjoey Road, Avalon, to a related company of the second defendant. This option was extended from time to time.

H. The plaintiff's tenancy, noted as expiring on 14 June 1999, was disclosed to the grantee of the option.

I. The option was exercised by the second defendant on 30 April 1999.

J. On 3 May 1999 the agent informed the first defendant that the plaintiff was seeking to continue in possession.

K. At all material times the tenant of shop 1/23 Old Barrenjoey Road, Avalon, TanCafe Pty Ltd, was aware of its rights under s 16 of the Retail Leases Act 1994.

L. On 22 June 1999, the second defendant pointed out to the first defendant's solicitors that there could well be a problem with the tenants' rights over 23 Old Barrenjoey Road.

M. In early June 1999, the third defendant and a director of the second defendant called upon the plaintiff. A statement was made that the plaintiff's leases expired in June 1999 and they had a conversation about a possible extension of the leases for six months.

N. In late July 1999, the plaintiff approached Mr McDonagh and told him that he had decided to vacate the premises and move to 29 Old Barrenjoey Road, Avalon.

O. Mr McDonagh prepared a document, which is on page 63 of the agreed bundle of documents (Exhibit PX01) and which bears date 28 July 1999. That document, which was signed by the plaintiff, contained, inter alia, the statement that the plaintiff gave formal notice that he wished to surrender the leases.

P. In mid August 1999 the plaintiff moved to 29 Old Barrenjoey Road.

Q. The plaintiff took a lease of 29 Old Barrenjoey Road from 12 August 1999 to 11 August 2002 with an option to renew. His rent under this lease was $4,127.98 per month as opposed to $2,600 under the leases for 23 Old Barrenjoey Road.

R. The plaintiff lodged caveat 6683497X against the title of 23 Old Barrenjoey Road on 3 April 2000.

S. On 7 April 2000 the plaintiff commenced the present proceedings.

T. A lapsing notice in respect of the caveat issued between 3 and 10 May 2000.

U. A notice of motion to extend the caveat was filed on 28 May 2000.

V. I heard the notice of motion on 16 June 2000. The evidence was an affidavit of the plaintiff and an affidavit on behalf of the first defendant putting before the Court various documents and a bundle of documents.

W. At the end of the oral hearing, I reserved judgment over the weekend and am delivering it today. 3 It is necessary to look at the caveat and the pleadings in the proceedings. 4 The caveat claims that the plaintiff has an interest in the land as lessee under the two commercial leases to which I have referred. 5 The statement of claim pleads that the plaintiff has a lease over shops 2 and 3 pursuant to s 16(1) or s 16(2) of the Retail Leases Act 1994; that the plaintiff was unaware of his rights; that the defendants fraudulently misrepresented by silence the plaintiff's position which caused him to execute a surrender of the leases. Alternatively, there was an operative unilateral mistake which brought about the surrender of the leases; or alternatively, these surrenders should be declared void under the Trade Practices Act 1995. 6 The relief sought in the statement of claim is a declaration that the surrender is void and of no force or effect; or alternatively, a declaration that the plaintiff is entitled to rescission of the purported instrument of surrender, a declaration that each of the leases is still in force, and consequential orders, including an order that a formal lease in registrable form be granted expiring in June or July 2003, relief under s 87 of the Trade Practices Act, damages and costs. 7 It will be noted that there is no claim that the surrender should be set aside on terms. The prayer is that it be set aside as void. 8 I have closely examined the defences as well. The first defendant's defence does not appear to have been verified, but, doubtless, that will happen in the near future. The defendants say that there is a good defence of common mistake in that they would not have entered into the leases had they realised that they were five year leases; cf Solle v Butcher [1950] 2 KB 671. The defendants do not plead any estoppels, they do not plead any abandonment by the plaintiff of the premises, nor is there any plea of laches. There is no plea raising the fact that the plaintiff has not paid any rent since August 1999 or that the plaintiff has not in his pleadings made any offer to pay any rent. Apart from the defence of common mistake, there are denials of fraudulent misrepresentation, operative unilateral mistake or conduct that is caught by the Trade Practices Act. 9 In his pleading, the plaintiff says that he has a lease at law. There is no pleading on either side that the surrender was not by deed, as if there was a lease at law it would have had to have been; see Zorbas v McNamara (1961) 62 SR (NSW) 159; 77 WN (NSW) 561 and see article by Tebbutt in (1961) 34 ALJ 353. 10 There is no allegation on either side as to the effect of s 53 of the Real Property Act 1900. Section 53 prevents a lease for more than three years from having operation at law unless it is registered. The effect of s 16(2) of the Retail Leases Act is thus that if a lease is not registered it cannot take effect at law at all. This, however, is not pleaded on either side. I should note in passing that the adoption by the New South Wales Parliament of the form of section 16(2) of the Retail Leases Act, rather than the form adopted in Victoria which is to give the tenants an option to extend up to five years, raises all sorts of theoretical problems. Because the present leases do not exceed five years there are no subdivisional problems, but the protection of tenants under section 42(d) of the Real Property Act has been removed by a sidewind. Furthermore, the tenant's rights at law have been removed because the leases now no longer comply with s 53 of the Real Property Act. As I say, these matters are not pleaded, but I draw attention to them in case the government may feel that some alteration in the law should take place. 11 It is on these rather odd pleadings, if I could say so with respect, that I have to decide the instant case. 12 Section 74K of the Real Property Act 1900 as amended provides that on the hearing of a motion such as the present - "...the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until the further order of that Court, or may make such other orders as it sees fit, but, if that Court is not so satisfied, it shall dismiss the application." 13 I think the word "shall" in that subsection must mean "must". If I am satisfied that the caveator's claim to a lease may have substance, then in my discretion I may make an order extending the caveat or some other order. If I am not satisfied that that claim has substance, I must dismiss the application. 14 As I have indicated earlier, it would seem that the plaintiff could not have leases at law but at the very best could have leases in equity. The leases were never registered and are for more than three years. However, the plaintiff will only have leases in equity if he has agreements which can be specifically enforced; see Chang v Registrar of Titles (1976) 137 CLR 177. The evidence before the Court at present indicates that there may very well not be an arguable case for specific performance, not only because of the precontract conversations which I have set out in "F" of my recital of the facts, but also because of the plaintiff's quitting of the premises in August 1999 and not paying rent thereafter. 15 However, I suppose that I must deal with the case on the pleadings, and they seem to indicate that the plaintiff had two leases at law, at least up to 14 June 1999, and that is not denied. Further, that the plaintiff surrendered such leases (even though the surrender was probably invalid) and that that surrender should be set aside because of fraud, operative unilateral mistake or under the Trade Practices Act. 16 The plaintiff seems to be saying in the pleadings "I had two leases at law for one year. By s 16(2) of the Retail Leases Act 1994, those leases were extended to five year leases. I surrendered them after a fraudulent misrepresentation by silence or operative unilateral mistake. The surrender is void, therefore I still have two leases." 17 It should be noted, however, that apart from putting the case that way, the plaintiff also seeks a declaration that he is entitled to rescind. This is odd because it seems to indicate that by his pleadings the plaintiff has not actually elected to rescind, but is reserving to himself the right to make that decision later. It matters very little because the Court cannot assist the plaintiff until he has made that election. 18 Accordingly, what is the effect of fraud or unilateral mistake or misleading conduct under the Trade Practices Act on a transaction? 19 Fraud does not make a transaction void, it only makes it voidable. Until there is an election to void, the transaction remains; see eg Clough v The London and Northwestern Railway Company (1871) LR 7 Ex 26, 34. Accordingly, until there is:

the transaction cannot be considered to be void. 20 Common mistake in the sense of the transaction involving res sua, or res extincta, or where there is a mistake as to the person with whom the contract is made, operates so that the transaction is void. 21 The claim for unilateral mistake in para 23 of the statement of claim, rightly, does not seek to say that the transaction was void but rather that it should be rescinded. 22 It must be remembered that there are two types of rescission; see Kramer v McMahon (1969) 89 WN (Pt 1) (NSW) 584. The first type of rescission is where a party by his or her own act can restore the status quo. The second type of rescission is where a party cannot so act but requires the Court's assistance to restore substantially the status quo. That is a claim in equity, and usually the Court does not grant rescission unless the plaintiff is willing and offers in the pleading to do all such things as are necessary to bring about substantial restitution. 23 Where one has a claim for the second type of rescission then even though the successful outcome of those proceedings will bring about the restoration of the plaintiff to an interest, until the time the Court makes the order the plaintiff only has a potential interest in land. A potential interest in land of that nature is insufficient to support a caveat; see Re Pile's Caveats [1981] Qd R 81 and Lindsay, Caveats Against Dealings (Federation Press, Sydney, 1995) p 67. 24 Therefore even if the plaintiff had five year leases at law, and even if the facts were such that the leases would be set aside by the Court for operative mistake or fraud, the plaintiff would not, at the time when he lodged the caveat, have a claim to an interest in the land. The position under the Trade Practices Act appears to be the same as under the other heads; that is, until the Court makes the order there is no interest in the land 25 Accordingly, the claim to extend the caveat would need to be dismissed. 26 However, in many cases where the Court is met with this sort of situation it can grant an injunction, and I need to briefly consider whether this is a case where that should happen. 27 Under the Trade Practices Act the Court must consider the smorgasbord of remedies available and work out which is the more appropriate. A claim that a surrender should be set aside as void may not find favour in the Court if the Court thinks that some other remedy is more suitable. That remedy may be damages. 28 Likewise, a case based on fraudulent misrepresentation may be one where the Court can award damages for the tort of deceit. 29 However, unilateral mistake does not give rise to any claim for damages. The mere fact that someone has an equitable claim to set some transaction aside does not of itself give a claim for damages, and I myself have very great doubt as to whether s 68 of the Supreme Court Act 1970 applies in such a situation. 30 The plaintiff proffers an undertaking as to damages to support the caveat or an injunction. This is quite necessary as the statutory provisions for compensation have been found to be wanting. One would have thought that the defendants might have liked to have had an injunction granted so as to be protected by such an undertaking because while the proceedings are on foot there must be some cloud on the title which may mean that one or other of the defendants may not wish to complete. However, the defendants made it quite clear that they objected to not only extension of the caveat but also any injunction, claiming that this is just a damages case. Indeed, cross-examination of the plaintiff tended to suggest that that is also what the plaintiff thinks. 31 However, it is not just a damages case because of the problem of operative unilateral mistake, which at the moment would seem to be the stronger limb of the plaintiff's attack. 32 I have to consider the general balance of convenience and whether damages are an adequate remedy. I am told from the bar table that the contract is due for completion on 30 June 2000, although there is no evidence of this. There is no evidence as to whether the introduction of the GST will have any effect on the completion one way or the other, but certainly one can gather that the delay of completion of a development project extending to the next site as well would cause considerable inconvenience. 33 The plaintiff has been out of possession for ten months. He has not paid any rent in respect of the subject premises. He says that the premises into which he has moved are too expensive and he might like to move back, but that was all very vague. 34 The Court has said on more than one occasion that it will not permit caveats to be used as instruments for oppression, nor will it allow injunctions to be used oppressively. 35 In my view, the case made out for relief other than damages is not that strong. The balance of convenience favours allowing the completion to go ahead and the probabilities are that despite the problems with unilateral mistake, this is really a damages case. 36 Accordingly, I do not think I should grant an injunction. 37 The notice of motion is dismissed with costs. 38 There will need to be some directions given as to the disposal of the exhibits and getting the case ready for trial. 39 I stand the matter over to the Registrar's list on 22 June 2000 at 9.30am. ********************

Last Modified: 09/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.